Bank of the future

The banking industry is undergoing a sea change at the hands of digital technologies. As digital banking gains focus, the need for speed and agility in risk management and regulatory compliance functions becomes even more pronounced. This is driving banks and financial services firms to craft well-rounded digital strategies for risk and compliance management. The advent of digital banking has not only changed the risk profiles of banks, but has also allowed them greater access to information, which can prove extremely useful in designing comprehensive risk management strategies.

To respond to the demand for resilience and agility, and to successfully adopt newer business models, risk organizations of financial institutions must focus on the following aspects:

Calibrated risk management frameworks: Organizations need to tune their risk management frameworks to accommodate their altered risk profiles and appetite. As digital banking increases customer interactions through a variety of touch points, financial firms need to deal with a high degree of professionalism and accountability to ensure fair engagement practices. A higher number of interaction channels implies more entry points for risks and probabilities of fraud. Take for example this incident where some 100 banks and financial institutions around the world were struck by a highly sophisticated cyber-attack. To deal with the rapid innovation in cybercrime, financial firms must establish foolproof policies and procedures, while equipping themselves to respond to the fast-evolving requirements of digital customers.

Automated risk management process: The success of digital banking largely depends on a firms ability to introduce speed, agility, and flexibility in its risk management and compliance functions. This means, banks need to automate repetitive processes to improve straight-through processing and business service orchestration to effectively integrate risk services to frontline operations.

Intelligent use of collected data: Increased maturity of digital technologies offers banks and financial institutions greater access to risk information, thus creating opportunities to improve data-driven risk management strategies. Proactive risk controls are therefore vital to deliver fair customer outcomes. Using internal (from organizational processes and functions) and external (from digital channels) data, organizations can effectively segment and profile customers to create targeted risk decision frameworks. A good example of this is how several lending firms (especially startups) in the US are leveraging Big Data based fringe alternative scoring models. Advanced and cognitive analytics are what firms are turning to, in order to deliver tangible business value.

Centralized data utilities: Digital banking opens up additional information sources and enables banks to gain access to relatively unexplored pockets of customer and market data. To digitally orient their risk strategies, banks and financial firms must develop resilient, centralized risk data services to successfully leverage the vast volume of data assets and deliver timely insights in a cost-effective manner. Risk organizations of several large banks and financial institutions have started to adopt risk data infrastructure powered by Big Data technologies to better manage organizational risks and drive business agility.

The digital era has brought about enormous changes in what customers expect from a bank, altering the way financial institutions engage with them. As digital channels introduce newer entry points for operational and business risks, organizations have begun to lay additional emphasis on building resilience into their systems to ensure a seamless and risk-free digital banking experience for customers.

We believe that for global banks and financial institutions to realize their digital banking dreams, a digital-oriented risk management strategy is extremely vital. What is your take on the digital reorientation of risk management? Have you deployed innovative tools and techniques to manage the risks born out of digital banking?

Raghunandan Mahadev is a Domain Consultant with the Risk Management practice of the Banking and Financial Services (BFS) business unit at Tata Consultancy Services (TCS). He has more than 14 years of experience in the enterprise risk management (ERM) space. He has supported global banks and financial institutions in implementing risk management capabilities and solutions through transformational programs across CRD IV, Basel III, and so on.